Anyone familiar with Waiver of 60-Day Rollover Requirement under Rev. Proc. 2016-47

[pb4uski]

Short version. My 93 year old aunt had an Navy Federal Credit Union IRA CD mature in March 2025. She did her RMD with federal tax withholding. Additionally, she did a full distribution with no federal tax withholding. She then deposited the full distribution into their Synchrony Bank joint savings account, blissfully unaware that it needed to be deposited/rolledover into an IRA to not be a taxable distribution. She manages the family finances and compounded the situation by doing the same for my 89 year old uncle.

She is not financially sophisticated and did not inform me about what she planned to do. In her mind she was just moving money from Navy Federal to Synchrony Bank to get a better interest rate (after the IRA distribution proceeds were depositied into their joint savings account a big chunk of it was later transferred into a CD at Synchrony).
,
They first became aware of the problem today when I was doing their tax return and asked about what they did since they received two 1099-Rs with six-figure total distributions. As is, they would owe mid five-figures in taxes.

From what I am reading, it seems like they can set up new IRAs and include a letter indicating their mistake and that it seems likely that the IRS will waive the situation and allow the rollover. Has anyone dealt with or experienced this?

I'm a little miffed that when she deposited the distribution checks into their joint savings account that Synchrony didn't alert her to this problem, but Synchrony Bank does business with them by mail only.

So from what research I've done I think the best solution is to have them set up his and her IRAs at Schwab (which has a branch nearby), then deposit the amounts of the total distributions to the new IRAs along with signed Certification for Late Rollover Contribution letters... and cross our fingers that the IRS doesn't object.

Thoughts? Have any of you been through this?

IRS Eases Rules To Fix IRA 60-Day Rollover Mistakes

Under Rev Proc 2016-47, the IRS offers a new model letter to use as self-certification when fixing a missed 60-day deadline for an IRA rollover.

www.kitces.com

 

[pb4uski]

Additional thoughts. I think that in this situation of an unsophisticated 93 year-old not understanding the need to deposit the total distribution to an IRA to avoid it being taxable complies with the Congressional intent to grant a "hardship waiver" extension to the 60-day rollover period “where the failure to waive such requirement would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to such requirement.”

OTOH, the condition that they are checking says "The distribution was deposited into and remained in an account that I mistakenly thought was a retirement plan or IRA." I'm not sure if my aunt mistakenly thought that their joint checking acccount was an IRA... but more that she didn't know that the distribution needed to be deposited to an IRA.

A distinction without a difference?

 

[SecondCor521]

I agree that she qualifies under the text of the law for a waiver. But the way I see it, she *might* need to do a PLR instead of self-certification.

Which of the 11 reasons listed in the Kitces article would you believe applies to her situation? [ETA: I see you're/they're choosing the "mistakenly thought it was an IRA". I think legalistically her situation doesn't match, but practically I would say it does. Does one of the other reasons fit better?]

 

[SecondCor521]

Normally I'm pretty legalistic, but a confused 93-year-old with zero intent who meets the criteria of the underlying law, who probably can't afford $10K for a PLR which would probably be approved, whose situation is pretty close to one of the reasons in the RevProc? Eh, I'd let it go in this case as long as I felt I could sleep at night if I did as you're suggesting (move the money back into IRAs, file the self-certification and call it a day).

 

[pb4uski]

I don't see any of the other 10 reasons that fit better. I'm thinking/hoping that the intent of the reason that I highlighted was intended to cover blissfully unaware situation like this situation but that it was difficult to have wording to cover such situations.

The $10,000 cost of a PLR... times 2 or $20,000... would exceed the excess of the tax over what they or their heirs will pay in tax on the RMDs if we are able to fix it.

 

[pb4uski]

Normally I'm pretty legalistic, but a confused 93-year-old with zero intent who meets the criteria of the underlying law, who probably can't afford $10K for a PLR which would probably be approved, whose situation is pretty close to one of the reasons in the RevProc? Eh, I'd let it go in this case as long as I felt I could sleep at night if I did as you're suggesting (move the money back into IRAs, file the self-certification and call it a day).

I'm thinking the same thing. But wouldn't it be 2 PLR's one for her and another for him? Worst case, they would disallow it and they would have to pay the same in tax as what they are facing now... plus perhaps some interest but they'll be earning interest on the deposit in the IRA so that sort of nets out.

 

[SecondCor521]

I think if one asked the IRS person in charge of responding to the PLRs whether or not her situation is close enough for government work on the reason selected in the self-certification letter, they would say yes. And if they did choose to submit the PLRs, I think the IRS would approve; and if they didn't you'd have a decent case in tax court given the underlying text of the law.

Also, given that the Kitces article points out that the RevProc is a way to save the IRS from having to deal with zillions of apology PLRs for confused taxpayers and clerical mistakes, I would look at the list of 11 reasons as illustrative and not dispositive.

But hey, I'm just SGOTI.

And you're right, you could try one PLR but since there's two taxpayers involved it could be two.

As an aside, I'm interested in @cathy63's take.

 

[pb4uski]

... As an aside, I'm interested in @cathy63's take.

Me too and if she or any other members have actually gone through this or something similiar.

To be honest, I didn't know a waiver even existed until this happened and I started researching it. I thought that they would be toast even though it was an honest mistake from not understanding the rules. I was pleased to find out that a waiver proces existed.

I think it probably happens quite often by people who are unaware... though OTOH, ignorance of the law is no excuse as they say.

 

[Original Wally]

When I read the Rev. Proc, it is clear that NONE of the a-k exceptions really apply in this case. Not "LITERALLY".
As discussed supra, the BEST case is exception "c", but as also stated, that is not exactly the case here. It is more a case of simply not knowing what to do rather than thinking it WAS a qualified account. I am not sure under audit that the Service would let it go - ESPECIALLY if they could generate a "mid five-figures in taxes" adjustment. The tweak to the "c" exception would be that she didn't UNDERSTAND that the rollover needed to be into a qualified account - but THAT is not a valid reason. (The old "ignorance of the law is no excuse - sigh)

The sample self certification letter appended to the Rev Proc lists ONLY the 11 stated reasons and one must be checked. PERHAPS a candid discussion with the Schwab rep ahead of time discussing the matter would be helpful. A simple explanation highlighting her age and lack of knowledge and the grave hardship resulting from a strict interpretation of the Rev. Proc. would be of some use. PLUS if you are rolling over a BIG deposit, the rep MAY be more willing to overlook any ... minor exception as the REAL burden is on the taxpayer.

MY recommendation? Self certify, tread LIGHTLY with the new custodian about not exactly meeting the requirement, and if they accept the self certification, go for it. The WORST that could happen is you lose it under audit <- which MIGHT BE a fairly low risk. If you DO lose, you are in no worse position than you currently are. QUICK analysis = nothing to lose, and everything to gain. That would be my advice if she were my client - with NOTHING written, but a VERY CLEAR discussion of the risk.

One more random thought - when drafting the self certification letter, in ADDITION to the listed exemptions I MIGHT be tempted to ADD another bullet point and check THAT one in addition to the one that says...

___ The distribution was deposited into and remained in an account that I mistakenly
thought was a retirement plan or IRA.


___ I was unaware of the requirements for Roll Overs.... (or some other excuse you could gin up.
The self cert does NOT go to the Service, it is ONLY justification for the new custodian to accept the deposit.


As always.... YMMV

 

[Montecfo]

I would make sure your self-certification fits the requirements of the Rev. Proc. #3 seems closest to the facts. I would also cite her age.

The statute itself does not help unless you want to request a PLR.

My guess is your approach will probably work if you do not try for facts outside of the requirements of the Rev Proc.

And I would try to get her to surrender the "keys to the car" if you will.

 

[cathy63]

Per the 5498 instructions, the current Rev Proc for this topic is 2020-46, which is newer than the one referenced in the Kitces article. The summary on the new one just says that they've added escheatment to the list of waiver reasons, which wouldn't apply to your situation, but you might want to read the doc and make sure nothing else has changed: Internal Revenue Bulletin: 2020-45 | Internal Revenue Service

I have never done this, but it looks like you would file a regular tax return (don't attach the letters); report the entire distribution on line 4a, check the rollover box, and put only their RMD plus whatever else they kept on line 4b. The IRS will have no way to know that they didn't meet the 60-day deadline for the rollover until they get Form 5498 from the IRA custodian in May. If you can submit the letters to the custodian and get them to issue a proper 5498 with entries for the delayed rollover on line 13, I think it's very unlikely the IRS will ask any questions.

If the custodian doesn't handle the letters correctly, the 5498 for 2025 will not show any contributions or rollovers and next year they'll issue one for 2026 with the rollover amount in box 2. That would cause a mismatch if anybody at the IRS ever looked at it. The question is whether any human or computer program will look. I know the document matching system looks at w-2s and some types of 1099s and compares them to the amounts reported on tax returns, but for obvious reasons the IRS doesn't publish the specs for that program, so there's no way to know if they compare 5498s. My gut feel is that they don't, because I've seen quite a few things that should have triggered some questions that were never asked. If it does pop on their system, it's going to be next year before you get a letter about it.

 

[gauss]

pb4uski,

Yes - I worked with someone who has gotten themselves in this situation.

It is my understanding that the receiving IRA custodian is the one that needs to vet this. They are also the ones receiving the money. If you can make a case to the salesperson for the receiving custodian then I think it should fly -- I think they do these all the time. I think they will have her sign their form certifying that she meets one of the conditions.

If memory serves, there are some very broad conditions she could qualify for:
In particular
(c) the distribution was deposited into and remained in an account that the taxpayer mistakenly thought was an eligible retirement plan;

Take the broad interpretation here that "she didn't realize that the new account was significantly different from the IRA"

I think it passes the laugh test and worked for the person we were working with a year or two ago.

-gauss

 

[pb4uski]

We did get it done and each rollover deposit was accepted by the IRA custodian, Wells Fargo Advisors in one case and Schwab in the other. Both of them processed as a rollover deposit and neither asked about the 60 days. Wells knew it wasn't within 60 days but never asked for the self certification. Schwab never asked. I suspect in each case they will take your money and if on audit it turns out that it wasn't a proper rollover then that's the customer's problem and not their problem. I'm fine with that.

I filed the return with both rollovers so the income for the year were the RMDs which were not rolled over.

While if it is audited I think we have a good case, if it is reversed on audit we are no worse off than we would have been without the late rollovers.

I added a memo to the file for each of them explaining everything and the story of what happened and why. I think the fact that the money was never spent helps a bit.

 

[pb4uski]

pb4uski,

Yes - I worked with someone who has gotten themselves in this situation.

It is my understanding that the receiving IRA custodian is the one that needs to vet this. They are also the ones receiving the money. If you can make a case to the salesperson for the receiving custodian then I think it should fly -- I think they do these all the time. I think they will have her sign their form certifying that she meets one of the conditions.

If memory serves, there are some very broad conditions she could qualify for.

-gauss

That is the way I read the Rev Proc too... that the self certification was for the protection of the financial institution accepting the late rollover. I thought that I would have to work to convince each financial institution to accept the rollover deposit with the self certification.

Strangely, Wells Fargo Advisors, who knew the rollover was a late rollover because we told them it was late, accepted the late rollover without even asking for the self certification. However, the WFA FA was a moron and a jerk, so I wasn't much surprised that he screwed the pooch on that.

I'm not sure if they do these much. The WFA FA guy claimed that he had been in the business for 37 years and had never heard of such a thing. In fact, for a while he said it was impossible until I gave him the Rev Proc number and he looked it up and consulted with other WFA staff.

 

[gauss]

That is the way I read the Rev Proc too... that the self certification was for the protection of the financial institution accepting the late rollover. I thought that I would have to work to convince each financial institution to accept the rollover deposit with the self certification.

Strangely, Wells Fargo Advisors, who knew the rollover was a late rollover because we told them it was late, accepted the late rollover without even asking for the self certification. However, the WFA FA was a moron and a jerk, so I wasn't much surprised that he screwed the pooch on that.

I'm not sure if they do these much. The WFA FA guy claimed that he had been in the business for 37 years and had never heard of such a thing. In fact, for a while he said it was impossible until I gave him the Rev Proc number and he looked it up and consulted with other WFA staff.

FWIW - I think the person I was working with went to Fidelity. Fidelity may be more versed in these types of things.

(Fidelity certainly helped me get an inherited IRA annuity rolled over from a life insurance company that did not want to play. I wrote about this here sometime in the last month or so)

-gauss